This provides a discussion by Ebeling of Mises’ policy advice to the old Austro-Hungarian empire and then the Austrian republic which replaced it, on the basis of “lost papers” of Mises recovered in 1996 and the 3 volume Selected Writings of Ludwig von Mises.

One of the more interesting points that emerges is Mises’ policy advice for Mexico:

“in a lengthy monograph that he wrote during the Second World War devoted to economic reform in an underdeveloped country like Mexico, he took as ‘given’ that the politics of Mexican society was not ready to fully privatize, say, the national railway system or the oil industry. So as a ‘second best,’ Mises proposed transforming the railway system into a government-owned but privately managed corporation with strict rules and procedures to assure it was run in a relatively ‘business-like’ manner with the least likelihood of political interference. He even supported limited and temporary subsidies to assist poor Mexican farmers to establish themselves as more-successful private enterprisers.

And on tariffs, he did not propose immediate abolition of trade barriers in Mexico. He accepted that there were many industries that had grown up behind the tariff walls, and that they would resist immediate repeal of trade protectionism. So, instead, he advocated ‘incrementalism,’ i.e., a gradual reduction of the tariff barriers over several years.”

Now, in contrast to many other Austrian views on economics, Mises’ plans here appear relatively reasonable. You might even say that reality penetrated his ideological mind and overcame his praxeological theory.

But one will have to wonder how a man who proclaimed that all government intervention in the economy leads to socialism or chaos could advocate “temporary subsidies to assist poor Mexican farmers” without devastating self-contradiction. How could Mises possibly believe that his “temporary subsidies” would be abolished after some limited period of time, without sending Mexico on the path to socialism or chaos?

In an attempt to defend Mises from Schuller (1950), Rothbard characterised Mises’ position as follows:

“When Mises presents us with the choice between the free market and socialism, he is saying that in-between systems of a hampered market are not coherent, consistent systems. He demonstrates that any measure of government intervention in the market creates problems and consequences which present the people with a further choice: repeal this measure, or effect another measure of governmental intervention …. interventionist measures logically lead to one or the other [sc. free market or socialism]. Since a socialist system cannot exist, the only intelligent choice is the purely free market. ... Mises demonstrates that every form of government intervention in the market creates consequences that lead to an economy worse than that of the free market, .… For Mises, all government intervention in the market is irrational and therefore contrary to economic law” (Rothbard 1951: 184).

Perhaps Rothbard exaggerated Mises’ position somewhat, but a reading of Human Action mostly confirms his view:

“The maintenance of a government apparatus of courts, police officers, prisons, and of armed forces requires considerable expenditure. To levy taxes for these purposes is fully compatible with the freedom the individual enjoys in a free market economy. To assert this does not, of course, amount to a justification of the confiscatory and discriminatory taxation methods practiced today by the self-styled progressive governments. There is need to stress this fact, because in our age of interventionism and the steady “progress” toward totalitarianism the governments employ the power to tax for the destruction of the market economy. Every step a government takes beyond the fulfillment of its essential functions of protecting the smooth operation of the market economy against aggression, whether on the part of domestic or foreign disturbers, is a step forward on a road that directly leads into the totalitarian system where there is no freedom at all” (Mises 1996: 282–283).

Commenting on his support of the gold standard and attacking opponents of it, Mises makes a bold claim:

“However, the futility of interventionist policies has nothing at all to do with monetary matters. It will be shown later why all isolated measures of government interference with market phenomena must fail to attain the ends sought. If the interventionist government wants to remedy the shortcomings of its first interferences by going further and further, it finally converts its country’s economic system into socialism of the German pattern. Then it abolishes the domestic market altogether, and with it money and all monetary problems, even though it may retain some of the terms and labels of the market economy” (Mises 1996: 474).

One sentence in this passage deserves emphasis:

“all isolated measures of government interference with market phenomena must fail to attain the ends sought”.

If Mises really believed this, then his support for “temporary subsidies to assist poor Mexican farmers” stands as a bizarre, illogical position for him. According to him, even isolated instances of government intervention with the market must fail.

So how, then, could Mises’ market-distorting subsidies possibly achieve the goal he wanted for them? A miracle? Libertarian magic dust?

We are faced with yet another instance of Mises’ intellectual hypocrisy and logical contradictions.

A more serious accusation against Mises is his ridiculous view that social democracy leads to fascism. Let’s take an example from history which is highly relevant to Mises’ theory.

Engelbert Dollfuss became Chancellor of Austria in 1932. In March 1933, Dollfuss effectively abolished democracy, and established an authoritarian regime, but was assassinated in July 25, 1934 and replaced by Kurt Schuschnigg, who was Chancellor from July 1934 to the Anschluss in March 1938.

And what exactly happened in Austria in this period when Mises may have had some influence on economic policy? Let’s look at a few quotes from the specialist literature on the history of Austria in the 1930s:

“In tackling the economic crisis the Dollfuss-Schuschnigg dictatorship pursued harsh deflationary policies designed to balance the budget and stabilize the currency. The government’s program featured severe spending cuts, high interest rates, and frozen wages. From an orthodox economic point of view there was considerable success: by 1937, both industrial and agricultural production had surpassed the levels of 1929; trade was more favourably balanced; the National Bank had liquidated most of its foreign debt and even accumulated reserves of gold and foreign exchange. In a sense the Christian Corporative regime demonstrated the viability of the Austrian state, but it did so at the cost of alienating a majority of the Austrian people. On the eve of Anschluss a third of the population was still out of work, while those fortunate enough to have jobs were bringing home paychecks considerably smaller than before the Great War” (Bukey 2000: 17).

“Beginning in in 1931, [Austrian] unemployment grew rapidly, reaching a peak in 1933–6, with between 24 and 26 per cent of the labour force out of work .... When, in 1937 and 1938, there was a modest recovery, unemployment never dropped below the 20 per cent value. This had a devastating effect on the legitimacy of the Austrian system .... As the Austrian government sustained its reluctance to apply Keynesian policies, the economic recovery never entered a serious tale-off phase in the second half of the 1930s. Linked to an exhausted determination of the Austrian government to resist the pressures from Germany, the economic crisis of the 1930s should be seen as an additional reason why the Austrian society was receptive to the annexation by Germany in March 1938” (Gerlich and Campbell 2000: 55).

Austrians are fond of pointing to the US recession of 1920-1921 as (alleged) proof that austerity brings prosperity, but you will not find them using 1930s Austria as proof of that, even though their hero Mises may well have had a hand in the contractionary policies pursued by the Austro-fascists.

In reality, it was the vicious austerity and deflationary economics imposed on Austria that led to some measure of public support for the Nazi takeover (Utgaard 2003: 72).

Let apologists for Mises explain whether he supported or even designed those policies.

BIBLIOGRAPHY
Bukey, E. B. 2000. Hitler’s Austria: Popular Sentiment in the Nazi Era, 1938–1945, University of North Carolina Press, Chapel Hill, North Carolina.

I think that when Mises said "all isolated measures of government interference with market phenomena must fail to attain the ends sought", he means economic ends. He overlooked the fact that government also seeks other ends. And he, as a policy maker, did just that, namely, pursued sociological ends. We all know that there are sociological constraint for any economic policy.

And I don't think that it trumps his praxeology. But I do think that it contradicts his idea of "all government intervention in the economy leads to socialism". He was plain wrong on this one.

I thought I would look into this a bit more. Finding out about von Mises in Austria during the late 1920s and early 1930s from books by "Austrian" economics is hard. For some reason they skip that period. So we have von Mises teaching in the 1920s and then leaving Austria in 1934... I wonder if we can discover why...

"Between 1925 and 1930 . . . some 150,000 jobs were lost in Austrian industry" (Tom Kirk, "Nazism and the working class in Austria : industrial unrest and political dissent in the 'national community`", Cambridge : Cambridge University Press, 1996, p. 31)

"After 1920, the Austrian government was mostly in the hands of the Christian Social Party . . .which eventually fathered the dictatorship of Dollfus and his Patriotic Front . . . Mises . . .had no innate enthusianm for the Christian Socials but . . . knew that a decent, responsible man had to collaborate with that government. As a financial and economic advisor, he had close contacts with the Federal Chancellor, Monsignor Seipel, whom he called 'a noble priest,' a wonderful man . . . Mises's advice was often taken, but at other times ignored." ("The Cultural Background of Ludwig von Mises", pp. 7-8)

"The effects of the government's policies were to be seen in the continued stagnation of the Austrian economy right up to the German invasion of 1938. By 1932 industrial production had fallen to 61 per cent of its 1929 output, and unemployment had reached 21.7 per cent of the workforce." (Kirk, p. 31)

As for Seipel, that "nobel" and wonderful man:

"After the war, he established a new Christian Social Party, now operating - the empire having been lost - in Austria alone. He served as Austrian Chancellor from 1922 until 1924 and again between 1926 and 1929. His main policy was the encouragement of cooperation between wealthy industrialists and the paramilitary units of the Heimwehr." (Monsignor Seipel)

"Engelbert Dollfuss, the Austrian Chancellor who tried to prevent the Nazis from taking over Austria. During this period Mises was chief economist for the Austrian Chamber of Commerce. Before Dollfuss was murdered for his politics, Mises was one of his closest advisers." (Hans-Hermann Hoppe, The Meaning of the Mises Papers)

"Dollfuss's assumption of full power in the state was accompanied by a curbing of civil liberties, including freedom of speech, assembly, and the press" (Modern Austria : empire and republic 1815-1986,Cambridge : Cambridge University Press, 1987, p. 195)

"The basis pattern for a totalitarian regime had been set; Austrofascism was established." (Jelvich, p. 204)

"Mises's radical views meant that he could never be a conventional conservative, though he was quite capable of alliance with rightwing governments to advance the cause of economic liberty. (He was an economic adviser to the conservative chancellor Monsignor Seipel and, under the Dollfuss regime, joined the Patriotic Front.)" (Jörg Guido Hülsmann. Mises: The Last Knight of Liberalism)

"The Vaterländische Front (VF, English: Fatherland's Front also translated as Patriotic Front ) was a right-wing, austrofascist Austrian political party. It was founded in 1933 by Engelbert Dollfuss to collect all 'loyal Austrians' under one banner." (Fatherland's Front)

So it seems that von Mises joined a fascist party, as well as advising a fascist government.

Which raises a question -- why was there so much unemployment and economic crisis. The usual "Austrian" answer is that wages are too high.

"The standard of living for those in work declined as wages fell further and faster than prices. Unemployment benefits were meagre for only one year" (Kirk, p. 31)

Obviously they should have got rid of these "meagre" benefits as this was causing the mass unemployment -- as von Mises teaches us! And what about the greedy workers in jobs having too much power and so high wages?

"Rising unemployment strengthened the hand of the employers in the labour, and they attempted to dismantle what was left of the Republic's labour legislation." (Kirk, pp. 31-2)

Disputes fell from 242 in 1928 to 30 in 1932 and the number of strikers from 562,992 to 79,942

Still, unions still existed! What about under Dollfuss? That should see improvement as workers were liberated from the chains of unionism -- by fascism:

"The new regime brought immediate and tangible gains to employers at the expense of a further deterioration in working class living standards. Firms quickly took advantage of the absence of trade unions and the weak bargaining position of the workforce to enforce wage cuts" (Kirk,p. 44)

I guess that is why "Austrians" are not keen to discuss Austria in the great depression. I guess they will take some comfort that von Mises' advice to fascists like Seipel and Dollfuss was only "often taken" and not always taken...

So there seems to be good reasons why discussion of Austria in the 1930s is as rare as mentions of Nicholas Kaldor in "Austrian" works... he worked with fascistic/fascist regimes, which "often" took his advice, AND joined a fascist organisation ("the Patriotic Front").

And they dare to call this guy a libertarian... compare that to the Spanish and Italian anarchists (i.e., genuine libertarians) who were fighting fascism tooth and nail.

Firstly, I would like to commend Iain on the great wealth of research he has found on a relatively undocumented period.

Secondly, LK, it's your blog and your rules, but I had submitted a follow-up post to my first one, but that one doesn't seem to be posted. Assuming you would have allowed it otherwise, did it ever reach the Comments Pending section, or was it lost by a Blogger.Com error?

Now, Vittorio de Sica, Luchino Visconti, Roberto Rosselini, and Federico Fellini are four major Italian film directors you folks may have known. When I was 14, I was a big enthusiast of classical foreign cinema, by the way. These men lived through Mussolini's Fascist regime. Visconti was a Communist and the rest had fairly anti-Fascist and pro-Socialist bents. However, under Mussolini, they cooperated with the regime, even Visconti, and agreed to make favourable cinema that was part propaganda for the establishment. Why? They had to save their lives. Moreover, they were fairly patriotic, and knew that corrupt leaders come and go, but some loyalty was needed, not out of allegiance to dictators but for love of their country. As long as chaos and violence is averted and good men get to stealthily a change a brutal regime, there is hope for a better future.

Are we going to say that Guilt By Association or even Guilt By Alliance is a charge to be levied on everyone who cooperated with Messrs. Hitler, Franco, Mussolini, Dollfuss, and the rest? That could condemn almost every man, woman, or child who ever worked for those governments. Even good people.

If we had discuss doing the complete opposite, I ask anyone to show proof of what violent civil disobedience, a la Conspiracy of Fire Cells of Athens and Thessalonica, has ever achieved and what have been the positive gains of such revolutionaries for the working class or otherwise. Tell me what Catalonia's anarchists have achieved by bombing police stations and killing policemen, who are also sons of the poor.

Well, it was just a long comment on Mises and Hayek predicting that conditions of state control could make room for Nazism all over again.

While I agree with anybody that this was a bad prediction, I had cited a few paragraphs from Omnipotent Government where Mises explains how that happened before Nazi Germany.

He had merely generalized about the future what happened in the past. Albeit wrongly.

To cut the long story short:

State controlled industries before Hitler had to allow the minister to occupy his position for a long period of time. Investments and fruits of investment take time and are expensive to withdraw; a minister of oil can not be removed as easily as a foreign minister. More problematically, a state controlled industry can not be put on a budget, because a major expenditure could be required on the spot, that had not been planned.

Thus are laid down conditions under which a part of government becomes a permanent bureaucracy with a blank cheque. Then, by the time the Nazis started to rise, there came the need to control the costs. Price controls had to be imposed on goods purchased by the government. To prevent shortages of those goods, factors of production had to be price controlled. By the time Nazis were in power, they kept controlling prices of factors of factors, until wages, prices, and interest rates were all government controlled. Prices were prices in name only, and the government decided allocation of resources through nominally private industries.

But when wages were frozen by the government, the government had to keep raising them to avoid protests. Pressure to do so led to import duties and monopolization of industries through consolidation of domestic private industries and barring of foreign ones. They hoped to raise prices and thus wages. But Germany already had domestic production exceeding domestic demand. This was not infant industry protection. All this did was make goods more expensive, real wages lower, and nominal wages higher.

Germany's protection led to import substitution policies in less advanced countries, and it feared being shut out of foreign markets. To keep Germany's real wages still rising and industrial progress still going, it had to move from economic nationalism to complete autarky and self-sufficiency.

But that required expansionism and Lebensbraum.

This was Mises' reasoning. Soviet Russia was less likely to go to war than Nazi Germany, because the former was large enough to maintain autarky. Germany needed to conquer.

"Are we going to say that Guilt By Association or even Guilt By Alliance is a charge to be levied on everyone who cooperated with Messrs. Hitler, Franco, Mussolini, Dollfuss, and the rest?"

Not at all. I am saying that Mises advised Dollfuss on economics - the economic policy of Dollfuss implemented did not cure the depression in Austria, and instead causing severe cuts in real wages and high unemployment. That contributed to the popular opposition to the regime and some support for the Nazi takeover, since it was thought that the Nazis would change economic policy.

LK, but this is just another variant of the tired "even Smith wanted taxes" argument. Einstein has spent his all life trying to rebut his own child of quantum mechanics claiming that "God does not play dice". So what, Einstein was stupid? No, he was a genius before his time, he himself could not fully understand and appreciate what he discovered. Same for Mises. Also, no one here is an expert of Austria in the 30s and know all the factors that might have caused unemployment there at that time, so don't expect us simply to believe in your wild guess.

I make no wild guesses. I don't even claim that Mises was definitely advising Dolfuss to undertake the polices described above. The question whether he was and what he was advising is, however, open for debate.

How much of a role do you think the pro-autarky protectionism of Dolfuss had in aggravating the recession? Supposedly, the man was no mere infant industry protectionist (which many of Mises' mentors and contemporaries were), but a nationalist out to cut his country economically away from the world.

Such ideas were typical after World War I, when people believed capital had a nationality and thus there could ever be a thing as enemy capital and friendly capital. And in the GD period was when non-Americans believed foreign fluctuations were responsible for worsening their domestic situation.

I was often advised by my grandmother as a child on what to do and what not to do. One could hardly say that the subsequent turmoil of my adolescence was a result of the advice given by my grandmother, especially when at the end of the day, the choice was left to me to follow those prescriptions or not. In order for this post to be truly meaningful, you would have to demonstrate that the Austrian government undertook the Austrian economic doctrine as a whole. If they did not, then you need to demonstrate how those specific policy prescriptions enacted that can be considered "Austrian" caused higher unemployment than would otherwise be the case. Even if you could do that, it would be irrelevant in proving that adherence to Austrian economic theory would result in the same high unemployment, because your example of Austria does not fit. If anything, it proves Mises right in saying that any intervention into the economy will not provide success, and must either be followed by another intervention, or repeal of the original intervention. We can only speculate upon whether this Fascist Austria would have ended as a socialist Austria.

Dollfuss was a corporatist and imposed a corporatist constitution upon Austria. To imply that this is in any manner consistent with Mises or Rothbardian ideals whatsoever is preposterous and defamatory.

New constitution

Dollfuss staged a parliamentary session with just his party members present in April 1934 to have his new constitution approved, effectively the second constitution in the world espousing CORPORATIST ideas (after that of the Portuguese Estado Novo). The session retroactively made all the decrees already passed since March 1933 legal. The new constitution became effective on May 1, 1934 and swept away the last remnants of democracy and the system of the first Austrian Republic.

Dollfuss was assassinated on July 25, 1934 by ten Austrian Nazis

The Austrofascist movement's origin lies in the Korneuburg Oath, a declaration released by the Christian Social paramilitary organization Heimwehr on 18 May 1930. The declaration condemned both "Marxist class struggle" and "liberal-capitalistic economical structures" and also explicitly rejected "the Western democratic parliamentary system and the [multi]-party state".

Economic policy

By 1930, foreign trade to and from Austria moved away from a free market system and became an extension of the autocratic government. Chief among the changes was the closing of the Austrian market to foreign trade in response to the New York stock exchange crisis in 1929.

Unemployment grew drastically under the Austrofascist regime (over 25% between 1932 and 1933). In response, the government removed unemployment benefits from the national budget. Additionally, the government created the so-called "Cooperations" of workers and enterprisers charged with undermining workers' movements. International trade was restricted and eventually banned.

Also, much of Austria's industry was in the newly created nation of Czechoslovakia. That and WWI can certainly be blamed upon the antiwar Rothbardians.

http://en.wikipedia.org/wiki/Engelbert_Dollfu%C3%9F

http://en.wikipedia.org/wiki/Austrofascism

In the spring of 1934, Mises gladly and immediately accepted a new job in Geneva.

It's owners of capital and industry who decide to cut wages, not the government. Situations of debt deflation do create the incentive to do that, but was it not businesses themselves who ultimately cut wages (incentives or not)? And if workers did not want those cuts, they simply protest or press hard in negotiations, until it is too unprofitable for business leaders to cut their wages, no? Ultimately, do wage cuts not happen because **some** workers DO want it?

The only examples I can see are the end of unemployment benefits by the government. But America in the postwar period saw plenty of private sector pensions and severance benefits. Meaning that businesses can and do offer benefits if they can afford it. If workers, capital, and industry feel it will save them and their jobs, they very much do it.

To say it's all an imposition seems, well, unusual.

PS: How do you fail to see that banning international trade ***completely*** can greatly aggravate a recession?! Thomas Jefferson once banned trade with Britain when the British were seizing American sailors, and that absolutely ruined America. Autarky destroys nations.

Of course reality trumps praxeology. Praxeology is excruciatingly circular! It says that all humans act with the intent of improving their situation -- and offers as proof the statement that if they didn't wish to improve their situation, they wouldn't act!

Is anyone else seeing the blatant circularity here? I'm not surprised AT ALL that Mises abandoned his methodology when it came to dealing with real world issues.

Why export-led growth specifically? For importer countries, is it also not a concern if cheap foreign goods were no longer available during a recession? Every additional dollar paid for a more expensive, lower quality, domestic good is a dollar lost that could have been saved, and thus spent on domestic industry through investment or consumption.

And a net importer like India, for example, has never had the capacity to produce large volumes of heavy, durable capital equipment and always has had to import much of it. Were it to lose access to foreign markets, it could barely muster enough human, natural, and financial capital to produce those capital goods, if at all.

If we were speaking of Russia or China or a similarly large territory with abundant natural resources, we could find it feasible that they could conduct a large portion of their commerce without ever trading abroad.

For tiny Austria, I simply doubt they were a self-sufficient country in which few goods went inside and few went outside. Unless it was rather poor, as 19th century Denmark was.

Pretty Bias analysis I have to say. This article makes the Austro-fascists look like wonderful libertarians, but this is far from the truth. As a matter of fact, Dolfuss completely outlawed foreign trade and also established worker and enterprise "Cooperatives". I think this might have something to do with the unemployment, but no, let's just look at one aspect of the economic policies and ignore everything else

"By 1930, foreign trade to and from Austria moved away from a free market system and became an extension of the autocratic government. Chief among the changes was the closing of the Austrian market to foreign trade in response to the New York stock exchange crisis in 1929.

Unemployment grew drastically under the Austrofascist regime (over 25% between 1932 and 1933). In response, the government removed unemployment benefits from the national budget. Additionally, the government created the so-called "Cooperations" of workers and enterprisers charged with undermining workers' movements. International trade was restricted and eventually banned."

Thanks, guys. However, living in Austria as I do, I find certain responders' suggestion that there is no connection between Austro-Fascism and current neo-liberal thought innocent, to say the least. Austro-Fascism is very much alive today, and it is, too, a form of neo-liberalism.

To your excellent analysis I would like to add some evidence of Mises early collusion with Dollfuss--in fact, his open endorsement of force to crush the Social-Democratic government of Red Vienna. It's in Jörg Guido Hülsmann, Mises.The Last Knight of Liberalism (Auburn, Alabama: Ludwig von Mises Institute, 2007), pp. 614-22.

I take it to mean he doesn't want to pull the rug out instantly from people who are accustomed to state-support. I don't find gradual implementation inconsistent with liberalism, so long as the goal remains no intervention.